The internal cost has tripled since 2019, as foreign sales increase, but it is still cheap
The US natural gas market was cut off from the world for decades. Transportation limits meant that prices reflected only local demand and supply. But the infrastructure of the industry has changed, and that means that US natural gas is going global. That will continue to have an effect on domestic prices.
The first facility to export liquefied natural gas (LNG) in the lower 48 states (all except Alaska and Hawaii) became operational in 2016, and the United States is now the world’s largest exporter of LNG, with a maximum capacity of about 14 billion cubic feet (400 million cubic meters, 0.4 bcm) per day. The new facilities being built will increase export capacity by a further 5.7 billion cubic feet (0.16 bcm) by the end of 2025, according to the US Energy Information Administration (EIA).
However, demand for US natural gas outside the states has increased faster than production. Between June 2019 and June this year, LNG exports more than doubled. Meanwhile, natural gas production only increased 7%, according to the EIA. As a result, LNG exports now account for more than 10% of US natural gas production, or about double what it was in 2019.
The result is easily seen in the raw material costs. Prices this summer are the highest since 2008. The Henry Hub natural gas spot price is $7.85 per million British thermal units ($27 per MWh) on September 7, more than three times higher than prices averaged in September 2019.
The natural gas boom in the United States could eventually fizzle out. Some legislators and domestic users are pushing for export limits to lower prices. Large producers like Qatar are also substantially increasing export capacity. And concerns about the environment could dent demand as solar, wind and nuclear power capacities increase.
However, multi-year LNG contracts are becoming more and more common. Investor preference for fossil fuel companies to prioritize return on capital over investment is likely to limit growth in domestic gas production. In addition, the difference between US prices and those of other countries is still very large. The Dutch October reference price is almost eight times higher than the current US Henry Hub price, on an equivalent basis, thanks to lower Russian imports. And the price of LNG in North Asia is seven times higher.
That means US gas will continue to be in high demand. And as US drillers export their fuels, domestic prices will rise.
